Global Trust Bank Ltd., Sec’Bad vs Kakateya Cement Sugar And … on 21 September, 2000

Andhra High Court
Global Trust Bank Ltd., Sec’Bad vs Kakateya Cement Sugar And … on 21 September, 2000
Equivalent citations: 2000 (6) ALD 135, 2000 (6) ALT 130
Author: C Somayajulu


ORDER

C.Y. Somayajulu, J.

1. M/s. Kakatiya Cement Sugar & Industries Limited (hereinafter referred to as the plaintiff), which is the first respondent in all these proceedings, filed OS No.333 of 1999 on the file of the Court of the III Senior Civil Judge, Secunderabad, seeking a mandatory injunction against the Global Trust Bank (hereinafter referred to as the defendant), which is the appellant in CMANo.3422 of 1999, second respondent in CMA No.3527 of 1999 and CRP No.5742 of 1999, to implement its instructions dated 27-9-1999 by directing it to transfer the credit balance in its deposit account to its current account, and filed IA No.1365 of 1999 in the said suit seeking an injunction restraining the defendant from disbursing any amount in its deposit account to anybody. An ex parte ad-interim injunction was granted therein against the defendant directing the defendant not to disburse the amount of Rs.200 lakhs kept in fixed deposit by the plaintiff on 10-10-1996 by way of escrow arrangement. Defendant put in its appearance, and filed its counter in IA No. 1365 of 1999. Subsequently Sri S.R. Kailash (hereinafter referred to as third party) filed three petitions i.e., (i) IA No.1390 of 1999 to implead him as a defendant in the suit, (ii) IA No. 1391 of 1999 to implead him as second respondent in IA No.1365 of 1999 and (iii) IA No.1382 of 1999 to vacate the ex parts ad interim injunction granted against the defendant in IA No.1365 of 1999. The Court below heard IA No.1365 of 1999 and the other IAs., filed by the third party separately.

2. In IA No.1365 of 1999 Exs.A1 to A13 were marked on behalf of the plaintiff and Exs.B1 to B18 were marked on behalf of the defendant. By its order dated 15-12-1999 the Court below, while allowing the petition, and making absolute the earlier ex parte ad interim injunction granted on 30-9-1999, directed the defendant to deposit an amount of Rs.2,68,62,533/- into the fixed deposit of the plaintiff, and keep it in fixed deposit until further orders. Aggrieved by the said order, the defendant preferred CMA No.3572 of 1999.

3. In IA Nos.1390, 1391 and 1382 of 1999 filed by third party Exs.A1 to A3 were marked on behalf of third party. No documents were marked on behalf of the plaintiff and defendant. By a common order dated 15-12-1999 the Court below dismissed all the three petitions filed by the third party. CMA No.3537 of 1999 is preferred against the order in IA No.1382 of 1999 and CRP No.5742 of 1999 is preferred against the order in IA No.1390 of 1999 by the third party.

4. Since both the CMAs. and the CRP arise out of the same suit they are being disposed of by a common order, though the Court below disposed them of under two separate orders.

5. Exs.A1 and A2 in IA Nos.1390, 1391 and 1382 of 2000 are the same of Exs.B1 and B17 respectively in IA No.1365 of 1999. Therefore, for convenience they would hereinafter be referred to as Exs.B1 and B17(In the appendix of evidence in IA No.1365 of 1999 the date of Ex.B17 is wrongly mentioned as 1-10-1996 instead of l-10-1999). Ex.A3 in IA Nos.1390, 1391 and 1382 of 1999 is the memorandum of understanding dated 3-10-1996 between the third party and the plaintiff. For the purpose of convenience it would hereinafter be referred to as MOU.

6. The case of the plaintiff, as disclosed from the averments in the plaint,

in brief, is that it is a Company registered under the provisions of the Companies Act, 1956 and was earlier known as Kakatiya Cements Ltd., and that after changing its name, it obtained a fresh certificate of incorporation (Ex.A2). On 3-10-1996 the Board of Directors of the plaintiff Company resolved (as per Ex.A3) to open a current account with the defendant-bank and deposited an amount of Rs.200 lakhs in deposit account, on which defendant agreed to pay 15% cumulative interest, and accordingly has been crediting the interest on the deposits to the account of the plaintiff after deducting income tax due as per the provisions of the Income Tax Act as seen from Ex.A4 to A6. Plaintiff (sic ‘defendant’) furnished Exs.A1 and A8 statements of account and also issued Exs.A9 and A10 certificates to the plaintiff certifying the amount standing to its credit. By Ex.A11 letter dated 27-9-1999, plaintiff revoked its earlier instructions and gave a mandate to the defendant to credit the amounts standing in its deposit account to its current account, but the defendant, instead of doing so, sent Ex.A12 letter on 28-9-1999 whereby it “assumed itself authority to disburse the amount held to the credit of the plaintiff without any legal rights and is making attempts to debit the account of the plaintiff unauthorisedly taking positions and usurping authority interpreting the business transactions between the company and third parties ignoring the fact that it is a banker of the plaintiff. Since Ex.A12 letter dated 28-9-1999 of the defendant infringed the rights of plaintiff and instructions given, the suit for mandatory injunction to implement the instructions given to the defendant under Ex.A11 letter dated 27-9-1999.

7. The case of the defendant, as seen from the counter-affidavit in IA No.1365 of 1999, in brief, is that plaintiff failed to disclose all the necessary facts and did not implead the necessary parties to the suit.

By Ex.B1 feller dated 10-10-1996, the Chairman and Managing Director of the plaintiff constituted the defendant an escrow trustee, in pursuance of the MOU between the plaintiff with the third party, for purchase of 36,71,550 equity shares for a total consideration of Rs.2,66,18,937/-, and informed that from out of the said amount (of sale consideration) Rs.66,I8,737/- was already paid to the third party, and the remaining amount of Rs.200 lakhs is being deposited with the defendant in escrow account, as per the MOU, and that the same may be dealt with in the manner specified therein i.e., Ex.B1 letter dated 10-10-1996, wherein it is specifically stated that defendant is under no obligation to act on any contrary instructions, unless agreed to in writing by Mr. P. Venkateshwarlu, Chairman and Managing Director of the plaintiff and the third party. As per the said escrow arrangement, during January, 1998, when 1,85,000 equity shares were released by Income Tax Department, defendant released the proportionate amount of value of those shares i.e., Rs. 10,08,2507- and the accrued interest thereon from out of the deposit account of plaintiff and gave that amount to the third party. By Exs.B5 and B6 letters dated 27-9-1999 the third party intimated the defendant that the income Tax Department agreed to release 34,87,093 equity shares, and so, amount at the rate of Rs.5.45 per share, as per the MOU, be transferred to his S.B. account and a demand draft for Rs.1,90,04,657/- may be issued in the name of the Commissioner for Income Tax, Central Circle, Karnataka. Subsequently plaintiff sent Ex.B7 letter (which is the same as Ex.A11) requesting the defendant to transfer Rs.200 lakhs in the deposit account to its current account, for which Ex.B8 reply (same as Ex.A12) was sent bringing to the notice of the plaintiff, the instructions contained in Ex.B1 letter dated 10-10-1996. On 29-9-1999 defendant received a copy of the letter addressed by the Income Tax Department to the third

party (Ex.B9). After verifying the shares released by the Income Tax Department on 30th September, 1999, defendant issued a demand draft on 1-10-1999 at about 8.15 a.m., for Rs.2,68,62,533/- in favour of the Commissioner, Income Tax, Central Circle, Karnataka. Thereafter at about 10-15 a.m., defendant received a letter from Sri K. Gopalakrishna Murthy, advocate for the plaintiff, informing that the Court granted injunction restraining the defendant from disbursing the amount. After obtaining legal opinion, defendant addressed a letter to the Commissioner, Income Tax, and also to the Reserve Bank of India, to stop payment of the amount covered by the draft issued by it, and therefore, the draft issued by it is still not encashed.

8. The Court below by the order under appeal in CM A No.3422 of 1999, held that Ex.B1 letter dated 10-10-1996 (Ex.B1) is an “unilateral act” of the plaintiff, and since the third party, who is the beneficiary under the said escrow arrangement did not sign the letter, it is not for it (defendant) to “adjudicate upon the terms and conditions of the document that was held by it under the escrow arrangement” and it (defendant) “acted as a Judge adjudicating the dispute giving its own interpretation to clause 8 in the letter dated 10-10-1996, being helped by a legal opinion obtained subsequently, contrary to the instructions of its own customer” and that it (defendant) “appears to have taken undue interest and acted with haste in collusion with S.R Kailas for the reasons best known to it” and since “a perusal of Exs.B13 and B15 smacks foul of the conduct of the defendant and “its patent collusion with” the third party, and that after the defendant “smelt that” the plaintiff is going to a Court of law, “acted with undue haste and mala fides and verified the shares on a bank holiday under the imaginary pressure of Income Tax authorities, which was not borne out by any evidence”, and that “by one stroke” it saved the third party

“from the Income Tax authorities by crediting the amount from the fixed deposit account” of the plaintiff to the S.B. account of the third party, and since “the suit amount is huge and more than Rs.2 crores, if injunction is not granted in favour of the plaintiff, it would suffer irreparable loss, made absolute the earlier order of ex parte injunction, and further directed the defendant to deposit Rs.2,68,62,533/- in the fixed deposit account of the plaintiff.

9. By a common order in the petitions filed by the third party, which is the subject matter of CMA No.3527 of 1999 and CRP No.5742 of 1999, the Court below held that since the “short question involved in the suit” is whether the defendant has to follow the instructions given by the plaintiff on 10-10-1996, according to the rules and regulations governing the banking law, and since the dispute raised by the third party is not directly and substantially in issue in the suit, and since the dispute in the suit can be decided effectively and completely even in the absence of third party, and as plaintiff did not seek any relief against the third party, and as Domimis Litis it cannot be compelled to implead a person against its wish, though in adjudicating the suit dispute, it may indirectly affect the interest of the third party, and since the third party has to file an “appropriate and properly constituted suit in a competent Court of law having jurisdiction, for declaration of his rights to the amount in dispute”, and since if such a suit were to be instituted it would be beyond its pecuniary jurisdiction, and since adding the third party to the suit would “result in a change of the subject matter of the suit, ousting the jurisdiction of the Court”, and since Ex.B8 (same as Ex.A12), in which clause 8 of Ex.B1 is reproduced, is filed by the plaintiff it cannot be said that plaintiff failed to disclose all the facts, third party cannot seek to set aside the ex parte injunction and cannot be impleaded as party

to the suit, and dismissed all the petitions filed by the third party.

10. The point for consideration is whether the plaintiff is entitled to the interim injunction sought against the defendant?

11. As seen from Ex.A3, while opening the account with the defendant, the Board Director of the plaintiff authorised Sri P. Venkateshwarlu, Chairman and Managing Director and Sri J.S.R. Prasad, Executive Director, jointly and severally to operate the account and authorised the defendant to “act on the instructions given by the said Directors consistent with the powers vested with them from time to time relating to the affairs or transactions of the company”. Ex.B1 is written by the Chairman and Managing Director of the plaintiff. Ex.B1 is not denied or disputed by the plaintiff in the suit though it is referred to in Ex.A11. Keeping these facts and also Ex.A1 resolution, wherein its preamble it is stated that Chairman and Managing Director informed the Board of Directors that an amount of Rs.200 lakhs is kept in Escrow Account with the defendant also, in view it has to be taken that Ex.B1 was written by the Chairman and Managing Director of the plaintiff to the defendant by the authority vested in him by the plaintiff.

12. The Court below which observed in paragraph 11 of the common order in IA Nos.1382, 1390 and 1391 of 1999, that “the short question” in the suit would be whether the defendant has to follow the instructions given to it by the plaintiff on 1-10-1996 (Ex.B1). obviously failed to keep that fact in view, and in fact did not advert to the effect of Ex.B1 and clause 8 thereof, while considering the contentions raised by the defendant in IA No.1365 of 1999, though the question whether plaintiff has a prima facie case or not, for seeking the injunction sought, squarely rests on the recitals in Ex.B1. Therefore, it is necessary to

reproduce Ex.B1, letter dated 10-10-1996, addressed by the Chairman and Managing Director of the plaintiff to the Executive Director of the defendant. It reads as follows:

Date: 10-10-1996

Dear Sir,

We have entered into an Agreement with the promoters of Sree Kailas Sugars & Chemicals Ltd., to purchase the 3671550 equity shares of Rs. 10/- each of certain associates at Rs.7.25 per share aggregating to Rs.2,66,18,737/-.

We have already paid Rs.66,18,737/- to Mr. S.R. Kailas, in terms of the said agreement.

As per the terms of the Agreement, we hereby confirm deposit of Rs.200 lakhs in our account to be maintained in Escrow with you to be dealt with in the manner specified herein.

Pursuant to the Agreement, we appoint you as a Trustee for effecting payments for the purchase of the shares under the following conditions.

Upon delivery of the share certificates as per list enclosed and blank share transfer forms signed by the seller to the Bank, you shall remit Rs.5.45 per share plus accumulated interest thereon to the account of Sri S.R. Kailas A/c.No.SB/ 11003228 at your Sarojini Devi Road Branch. It shall not be your purview to verify the signatures of shareholders.

2. The share certificates with the share transfer forms shall be forwarded to Kakatiya Cements Ltd.

3. The transfer of monies will be in proportion of the shares transferred.

4. We confirm that the monies are to be placed in a cumulative fixed deposit account. On release of monies, you

shall also pay to Mr. S.R. Kailas the proportionate accumulated interest thereon, or as near thereto.

5. The deposits may be made in denominations of Rs.10 lakhs each for period of 3 years.

6. This instruction is valid for a period of three years from this date or three months from the date of last release
of shares by the Income Department whichever is earlier. Mr. S.R. Kailas shall keep you informed of the date of release of shares by the Income Tax Department.

7. In the event of the shares not being delivered in part or in full, the balance in the account with the interest thereon shall be remitted to our account at the end of the period so specified as in above.

8. It is clearly understood between the parties to the Agreement that the above instructions arc irrevocable during the period specified above and yon are under no obligation, to act according to any further instructions you may receive from us to the contrary, unless agreed by Mr. P Venkateshwarlu. Chairman & Managing Director, Kakatiya Cements Ltd and Mr. S.R. Kailas, in writing.

9. We confirm that on release of monies it shall be the responsibility of only Mr. S.R. Kaials to pay the respective shareholders. (Underlining ours)

Thanking you,

Yours faithfully,

Sd/-

(P. Venkateshwarlu)

Chairman & Managing Director,
Kakatiya Cements Ltd.

13. It is very clear from para 3 of Ex.B1 (extracted above) that the amount of Rs.200 lakhs was deposited by me plaintiff with the defendant in “Escrow account” as per the MOU between the plaintiff and the third party. Therefore, it is necessary to refer to Ex.A11 (same as Ex.B7) dated 27-9-1999 addressed by the plaintiff to the defendant, for enforcement of which the plaintiff filed the suit. It reads :

“As you are aware, we had deposited Rs.200 lakhs on 10th October. 1996 by way of an escrow arrangement in connection with purchase of shares of various persons claimed by Sri S.R. Kailas as his associates. The subject shares are presently in the custody of Income Tax Department, who had seized them from the premises of Sri S.R. Kailas in connection with a search in the said premises.

We have since changed our plans and we are no longer interested in acquiring the said shares.

In view of the same, we hereby revoke all our earlier instructions in relation to the said account and hereby instruct you to close the above deposit account and transfer the balance amount in the said deposit account including accumulated interest to our Current Account No.1100108064 maintained with you.

(Underlying ours).

Yours faithfully”,

14. It is very clear from Ex.A11 also that the amount of Rs.200 lakhs, which is the subject matter of dispute in the suit, was deposited in “Escrow” arrangement with the defendant in connection with the purchase of shares from the third party. As per Clause 6 of Ex.B1, extracted above, the instructions given therein are valid for three years from 10-10-1996 or three months

from the date of last release of shares by the Income Tax Department whichever is earlier. It is not disputed that by 27-9-1999, on which date the plaintiff wrote Ex.A11, letter to the defendant, the Income Tax Department has not released the shares seized from the third party. Therefore, instructions given in Ex.B1, will be in force till 9-10-1999 as per Clause 6 of Ex.B1. Therefore, the question would be, in view of clause 8 of Ex.B1 whether plaintiff can unilaterally by Ex.A11 dated 27-9-1999 withdraw the instructions given in Ex.B1.

15. The Court below, having extracted the definition of ‘Escrow’ in Para 14 of the order under appeal in CMA No.3422 of 1999, held that since third party, who is the beneficiary under the ‘Escrow’ arrangement is not a signatory to Ex.B1. Ex.B1 will not have any force. The question, therefore, is whether the beneficiary in an ‘Escrow’ arrangement should also figure as a signatory to the said arrangement. For deciding the same, it is necessary to know what ‘Escrow’ is:

In Merriam Webster’s ‘Dictionary of Law’, ‘Escrow” is defined a “(1) an instrument, and especially a deed or money or property held by a third party to be turned over to the grantee and become effective only upon the fulfilment of some condition.

(2) a fund or deposit designed to serve as an escrow”.

In escrow: Held as escrow in Trust as an escrow (had $ 100 in escrow to pay taxes).

In Websters 3rd New International Dictionary ‘Escrow’ is defined as “A deed or bond, money or a piece of property delivered into the keeping of a third party by one party to a contract or some times taken from one party to a contract, and put in trust to be returned

only upon the performance of fulfilment of some conditions of the contract or to insure such performance or fulfilment by some other disposition”.

In Black’s “Law Dictionary” ‘Escrow’ is defined as “a legal document (such as a deed), money, stock, or other property delivered by the grantor, promisor or obligator into the hands of a third person, to be held by the latter until the happening of a contingency or performance of a condition, and then by him delivered to the grantee, promise or obligee. A system of document transfer in which a deed, bond, stock, funds, or other property is delivered to a third person to hold until all conditions in a contract are fulfilled; example, delivery of deed to escrow agent under instalment land sale contract until full payment for land is made.”

16. While considering the meaning and effect of “Escrow”, in Beesly v. Halhwod Estates (1961 Law Reports 1 CH 105) (1). Harman L.J. at Page 116 observed :

“An escrow, then, is a type of document which, perhaps, is best described in Norton upon Deeds, 1st ed., p.15; I read from the author’s edition; “If an instrument be delivered to take effect on the happening of a specified event, or upon condition that it is not to be operative until some condition is performed, then pending the happening of the event or the performance of the condition, the instrument is called as escrow. “The maker (of a deed) may so deliver it as to suspend or qualify its binding effect. He may declare that it shall have no effect until a certain time has arrived, or till some condition has been performed, but when the time has arrived, or the condition has been performed, the delivery becomes absolute, and the maker of the deed is absolutely bound by it, whether he has

parted with the possession or not. Until the specified time has arrived, or the condition has been performed, the instrument is not a deed: It is a mere
escrow.”

and at Page 118 it was observed :

“In other words, if you do deliver a document as an escrow it is your act and deed and is not recallable by you. If, of course, the condition be never performed, it never becomes binding, and I suppose there must come a time, if there be unreasonable delay in the performance of the condition, when, in these days at any rate where equitable principles govern the actions of the Court, the person or firm that has executed the escrow would be released from its obligation.”

From the above decision and the definition of ‘Escrow’ extracted above, it is clear that the beneficiary need not be a party to the ‘Escrow arrangement’ because “Escrow” is an arrangement by which one party to the contract deposits money etc., with a Third Party to the contract for a specific purpose, to be given to the Grantee after the conditions mentioned in the contract are fulfilled, which necessarily means that the grantee need not be a signatory to the ‘escrow’ arrangement.

17. As seen from Ex.B1 plaintiff deposited an amount of Rs.200 Lakhs in “Escrow” deposit with the defendant in connection with the purchase of shares from the third party under the MOU. The said fact is admitted in Ex.A11 also. As stated above for creation of an “Escrow” arrangement it is not necessary that the party, for whose benefit the amount is kept in deposit, should be a signatory to the arrangement. Since the third party with whom the money or deed is deposited is under an obligation to return the same to the grantee after the conditions of the grant

are fulfilled, it is necessary for the person holding the money or deed to satisfy itself if the terms and conditions of the agreement are fulfilled or not. Therefore, the observations of the Court below towards the end of para 14 of the order under appeal in CMA No.3422 of 1999, “………. it is not
for the respondent (defendant) bank to adjudicate upon the terms and conditions of the document, that was held by it under the escrow arrangement” cannot be said to be correct.

18. Looking at the issue is another angle the “Escrow” arrangement entered into by the plaintiff with defendant, in connection with the purchase of shares from the third party, is an agreement between the plaintiff and defendant. Therefore, plaintiff and defendant, as parties to the agreement under Ex.B1 are bound by the terms of the agreement between them. Therefore, for Ex.B1 to come into force it is not necessary for the third party to sign Ex.B1. But surprisingly plaintiff suppressed the MOU and Ex.B1 also in the plaint and the affidavit filed in support of IA No. 1365 of 1999, and for obvious reasons did not seek a declaration in respect of MOU or Ex.B1 in his suit. For this reason also, the Court below was in error in holding that since the third party has not signed Ex.B1, it is an ineffective document.

19. The contention of the learned Counsel for the plaintiff is that no trust can be inferred by the plaintiff depositing the money with the defendant as there is no transfer of right or title in the amount deposited by the plaintiff with the defendant, and therefore plaintiff continues to be the owner of the money deposited with the defendant. He contended that Exs.A9 and A10 certificates, issued by the defendant certifying that the amounts deposited are lying to the credit of the plaintiff, establish the title of the plaintiff to that amount, and

further contended that since the relationship between the defendant and plaintiff, as banker and constituent, is that of debtor and creditor only but not that of a trustee and beneficiary, the Court below rightly held in favour of the plaintiff. We are unable to agree with the said contention. Though “escrow” in stricto senso may not be “Trust”, “escrow” arrangement definitely is in the nature of or akin to that of a Trust. When a trust is created, the author of the trust alone executes document, and beneficiary of the trust will not, and need not, sign the deed of trust. Thus even in the absence of the beneficiary of the trust being a party to the deed of trust, the terms of the trust would come into operation. Similarly when some amount is deposited under an ‘escrow’ arrangement, the beneficiary of the amount need not figure as party to the agreement. As observed in Beesly ‘s case (supra) since deposit of the amount under ‘escrow’ arrangement is an act of plaintiff, it is binding on it, and is not recallable by it at its whim and fancy, contrary to the terms mentioned in Ex.B1. The effect of Ex.A9 and Ex.A10 would be considered hereunder.

20. The Court below overlooked the undisputed fact that as per Ex.B1 defendant has to transfer the monies proportionate to the shares released by the Income Tax Department, at Rs.5.45 Ps. per share, as and when shares, and blank share transfer forms, are delivered (even without the necessity of verifying the signatures of the holders of the shares), and forward the share certificates and share transfer forms to the plaintiff. So till such time as the shares are released by Income Tax Department and the blank share transfer forms with the released share certificates are sent to the plaintiff, without any doubt, plaintiff continues to be the owner of the money deposited with the defendant. When Income Tax Department releases shares and the third party delivers blank share

transfer forms with them to the defendant, defendant is bound to release, at the rate of Rs.5.45 Ps., per share for the shares so released, to the third party, at any time before 9-10-1999 till which time Ex.B1 will have force.

21. Though defendant specifically alleged in para 5 of its counter-affidavit that subsequent to Ex.B1, on release of 1,85,000 equity shares by the Income Tax Department, in January, 1998 it released Rs.10,08,250/-at the rate of Rs.5.45 per share and the accrued interest thereon as per the terms of Ex.B1, and credited the same to the account of third party. Plaintiff did not deny or dispute that fact their by filing a reply affidavit or otherwise. In fact Ex.A7 shows Rs.12,00,836/- was debited to the account of the plaintiff as “Account Closure” Transaction. It should be remembered that defendant, under clause 5 of Ex.B1, was directed by the plaintiff to make the deposit of Rs.200 lakhs in Rs.10 lakhs denominations for a period of three years. When Rs.10,08,250/-, with proportionate interest thereon, was paid to the third party, as per the terms of Ex.B1, obviously defendant closed a fixed deposit transaction of Rs.10 lakhs, and termed it as “Account Closure” Transaction in Ex.A7. Plaintiff accepted the same without demur. Therefore, it is clear that the third party had knowledge of Ex.B1, and plaintiff also knew that the defendant in January, 1998, acted in terms of Ex.B1 and debited Rs.10,08,250/-with accrued interest thereon to its account, and paid it to the third party towards the value of the shares released by the Income Tax Department. So it is clear that the defendant acted upon Ex.B1 escrow arrangement in January, 1998 and that plaintiff did not object thereto. For this reason also third party not being a signatory to Ex.B1 is of no consequence.

22. When once shares are released and sent to the defendant by the Income Tax

Department, and blank share transfer forms are delivered by the third party to the defendant, defendant as per Ex.B1, is under an obligation to transfer proportionate amount of the value of the shares released, with accrued interest thereon, to the third party by debiting the same to the account of the plaintiff under ‘escrow’ arrangement. Therefore, S. Barkat Ali and others v. Dharmambal Ammal, AIR 1940 Mad. 98 and N.M.N. Duraiswami Chettiar v. Dindigul Urban Co-operative Bank Limited and another, AIR 1957 Mad. 745, relied upon by the learned Counsel for the plaintiff, in support of his contention that the relationship between the banker and its constituent is that of a debtor and creditor, are of no help for a decision in this case. The facts in those cases are entirely different from the facts of this case, and the Court in those cases was not either considering or deciding the nature of amounts deposited with a banker under an ‘Escrow’ arrangement. The Supreme Court in Shanti Prasad Jain v. The Director of Enforcement, , held :

“the law is well settled that when moneys are deposited in a Bank, the relationship that is constituted between the banker and the customer is one of debtor and creditor and not trustee and beneficiary. The banker is entitled to use the moneys without being called upon to account for such user, his only liability being to return the amount in accordance with the terms agreed between him and the customer. And it makes no difference in the jural relationship whether the deposits were made by the customer himself, or by some other persons, provided the customer accepts them. There might be special arrangement under which a Banker might be constituted a trustee, but apart from such an arrangement, his position qua Banker is that of a debtor and not trustee”.

In New Bank of India Ltd. v. Pearey Lal, , it is held that :

“In the absence of other evidence a person paying money into a Bank, whether he is a constituent of the Bank or not, may be presumed to have paid the money to be held as bankers ordinarily hold the moneys of their constituents. If no specific instructions are given at the time of payment or thereafter, and even if the money is held in a suspense account the bank does not thereby become a trustee for the amount paid. In other words, when a person dealing with a bank delivers money to the Bank an intention to create a relation of creditor and debtor between him and the Bank is presumed, it being the normal course of the business of the Bank to accept deposits from its customers. But this presumption is one of fact arising from the nature of the business carried on by the Bank and is rebutted by proof of special instructions, or circumstances attending the transaction. Where- the money is paid to a bank with special instructions to retain the same pending further instructions or to pay over the same to another person who has no banking account with the bank and the bank accepts the ins/ruction and holds the money pending instructions from that person, or where instructions are given by a customer to his banker that a part of the amount lying in his account be forwarded to another bank to meet a bill to become due and payable by him and the amount is sent by the broker as directed, a trust results and the presumption which ordinarily arises by reason of payment of the money to the bank is rebutted”.

Therefore, in view of the instructions given by the plaintiff in Ex.B1, defendant should be deemed to be in the position of a ‘deemed

trustee for the amount of Rs.200 lakhs deposited by the plaintiff with it, for a period of three years from 10-10-1996 or three months from the date of last release of shares by the Income Tax Department. So, the mere fact that the defendant issued Exs.A9 and A10 certificates, which obviously must have been issued at the request of plaintiff, that the amounts mentioned therein arc standing to the credit of the account of the plaintiff, can have no relevance or consequence for deciding this appeal. Exs.A4 to A6, income tax deduction certificates also have no relevance for a decision in these proceedings, because as long as the money is lying in deposit in the name of the plaintiff, the defendant is under an obligation, under the provisions of the Income Tax Act, to deduct tax on the interest accrued and send the same to the Income Tax Department. Therefore, defendant rightly deducted income tax on the interest accrued and sent Form No.16-A, Exs.A4 to A6 certificates to the plaintiff.

23. Since Clause 8 of Ex.B1 mandates the defendant not to act on any contra instructions by plaintiff, unless agreed to in writing by the Chairman and Managing Director of the plaintiff and third party, defendant cannot be found fault in asking the plaintiff, by Ex.A12 (same as Ex.B8) letter, to produce the concurrence of the third party.

24. When the specific case of the plaintiff is that defendant, as a banker, has to follow its instructions scrupulously, and came to the Court on the ground that it failed to follow the instructions given by it in Ex.A11, and sought mandatory injunction to follow the instructions in Ex.A11, a question was posed as to whether the defendant, as a banker, is not bound by the instructions Clause 8 of Ex.B1. The learned Counsel for the plaintiff, probably knowing that ice under the feet of plaintiff was thin,

wanted to make the plaintiff to skate on by contending that Ex.B1 is a void document for want of consideration, and also contended that the transaction of purchase of shares, and the MOU between the plaintiff and the third party are hit by the provisions of the Securities Contracts (Regulation) Act, 1956 (hereinafter called the 1956 Act). We find no force in the said contentions for the following reasons : Plaintiff, under an escrow arrangement, in connection with purchase of shares from the third party, deposited money with the defendant and gave Ex.B1 instructions. Therefore the deposit of money by the plaintiff, with the defendant, is not a simple transaction of money with a banker by its constituent. It is no doubt true that in a simple money transaction, where a person deposits money in current or savings bank account, or fixed deposit with a bank, the relationship between the depositor and the banker would be that of a creditor and debtor. But where money is deposited into bank with specific instructions, such as under an escrow arrangement, the banker’s position would be akin to that of a trustee as in such cases a resultant trust would ensue, as held in New Bank of India’s case (supra). Even assuming that the ratio in New Bank of India’s case (supra) has no application to the facts of this case, since from Ex.B1 it is seen that the plaintiff intimated the defendant that it entered into an agreement to purchase shares from the third party, and that as per the terms of the said agreement it deposited Rs.200 lakhs under escrow arrangement and appointed it (defendant) naming it as trustee for, effecting payments to the third party as per the terms and conditions mentioned therein it is clear that defendant would be in the position of an agent of the plaintiff for payment of the money deposited by the plaintiff, to the third party as per the MOU. As per Section 183 of the Indian Contract Act, no consideration is necessary for creation of an agency. Therefore, Ex.B1 agreement cannot be said to be void for

want of consideration. Defendant undertaking such payment to the third party is also permissible under Section 4 of the Banking (Regulations) Act. Therefore, Ex.B1 is a valid and enforceable document.

25. The contention of the learned Counsel for the plaintiff that in view of 1956 Act the MOU is void cannot be countenanced because plaintiff has not challenged the validity of either Ex.B1 or the MOU in the suit, and has not sought for a declaration that Ex.B1 is a void document and the MOU is invalid. Without making any reference to Ex.B1 or the MOU plaintiff filed the suit for a mandatory injunction to implement the instructions given by it to the defendant, simply contending that the defendant, as a banker, failed to act as per the instructions given to transfer certain amount from fixed deposit account to the current account. When the MOU between the plaintiff and the third party is not challenged in the suit, the question of applicability of the provisions of the 1956 Act need not and cannot be taken into consideration for a decision in this case. All these apart the agreement relating to purchase of shares is not between plaintiff and defendant. Defendant is only an agent, or a de facto trustee, for payment of money due to third party from the plaintiff. Since the transaction for purchase of shares is not between the plaintiff and defendant the provisions of the 1956 Act can have no relevance for a decision in these proceedings more so when the suit filed by the plaintiff is simplicitor for a mandatory injunction against the defendant to implement its instructions.

26. As per Clause 8 of Ex.B1 defendant is under no obligation to act contrary to the instructions given therein, unless agreed to in writing by the Chairman and Managing Director of the plaintiff, and the third party. As stated earlier, since Ex.A11,

admittedly, does not contain the signature of the third party, defendant through Ex.A12 letter asking the plaintiff to produce the concurrence the third party cannot be found fault with, as it is strictly in consonance with the clause 8 of Ex.B1. In view of clause 8 of Ex.B1, unless the third party agrees in writing for the defendant to follow the instructions contained in Ex.A11, it is prima facie clear that plaintiff cannot be granted the relief sought in the suit.

27. The conduct of the plaintiff in not claiming a declaration regarding Ex.B1 and its failure to refer Ex.B1, either in the plaint or in the affidavit filed in support of IA No.1365 of 1999 or in the counter filed in the applications filed by third party, inspite of defendant specifically bringing clause 8 of Ex.B1 to notice of plaintiff in Ex.A12, obviously escaped the notice of the Court below. For Ex.A11 letter written to it by the plaintiff, defendant sent Ex.A12 reply, bringing to the notice of the plaintiff clause 8 of Ex.B1 and that defendant wrote Ex.A12 letter to the plaintiff is admitted in para 12 of the plaint. So it has to be taken that the letter dated 10-10-1996, referred to Ex.A11, is Ex.B1 only. Therefore, unless Ex.B1 letter is declared void by a competent Court of law, plaintiff is bound by what it stated in Ex.B1. As stated above in view of clause 8 of Ex.B1 plaintiff prima facie cannot be granted mandatory injunction to implement its instructions in Ex.A11 without concurrence by the third party, unless Ex.B1 is declared void. It is now well settled that for seeking a declaration that a particular document is void, plaintiff has to pay Court fees on the loss to be averted or advantage to be gained by him. Therefore, if the plaintiff were to file a suit for declaration that Ex.B1 is void, he ought to value the suit at Rs.200 lakhs. By camouflaging the relief and by not disclosing all facts, plaintiff obviously tried to avoid payment of proper Court fees, as, if a decree, in the terms sought by plaintiff, is passed in

the suit, it tantamounts to holding that Ex.B1 is not binding on the plaintiff or is void. Such relief cannot be granted without the plaintiff paying proper Court fees and filing the suit in a proper Court having jurisdiction. If we may say so the Court below also knew that the value of the suit is Rs.200 lakhs, because in Para 15 of the order under appeal in CMA No.3422 of 1999 it observed that “suit amount is huge and more than Rs.2 crores”, and in Para 13 of the common order under appeal and revision in CMA No.3527 of 1999 and CRP No.5742 of 1999 it observed :

“The suit is filed by the plaintiff against the bank for a mandatory injunction directing it to implement its instructions dated 27-9-1999. It may be that the adjudicating the suit dispute, it may indirectly effect the interest of the petitioner/3rd party. In such case, it is open to the petitioner, 3rd party to file appropriate and properly constituted suit in a competent Court having jurisdiction for declaration of his rights to the amount in dispute. It is also pertinent to note that such a suit if filed, would be beyond the pecuniary jurisdiction of this Court.”

Thus it is clear that Court below, being fully aware of the fact that the value of the suit is above Rs.200 lakhs, was in error in not considering the question as to how the relief of mandatory injunction, in the terms sought, can be granted without seeking the relief of declaration regarding clause 8 of Ex.B1. The Court below also was in error in not addressing itself to the question of maintainability of the suit in its Court, and the sufficiency of the Court fees paid by the plaintiff vis-a-vis the relief claimed in the suit. In the circumstances it cannot but be held that plaintiff has no prima facie case, which is the sine qua non for seeking an injunction under Order 39, Rule 1 CPC.

28. We are constrained to say that the comments made by the Court below against the defendant, and impliedly against the learned Counsel for the defendant, were unnecessary and are made without any basis, on pure assumptions and conjunctures. We wonder as to how, without evidence, the Court below observed towards the end of Para 8 of the order under appeal in CMA No.3422 of 1999 that Exs.B2, B5 and B6 were obtained by the defendant subsequently to help the third party “for the reasons best known to it”. As stated above Ex.B1 would be binding on the plaintiff even if the third party had not written Ex.B2 letter. Therefore, neither the defendant nor the third party would gain an advantage by bringing Ex.B2 into existence subsequently. Exs.B5 and B6 show that copies thereof were marked to the Additional Commissioner of Income Tax, Deputy Commissioner of Income Tax and also to the Executive Director of the defendant. Ex.B6 is a fax message. When and at what time the fax message was received can be known from some fax messages. Whether copies of Exs.B5 and B6 were sent to the authorities mentioned therein can be established by summoning the said documents from the concerned offices. Without giving an opportunity to establish as to when Exs.B5 and B6 were sent, either to the defendant or the third party, the Court below holding that Exs.B5 and B6 were brought into existence, cannot be said to be judicial approach for deciding the point for consideration before it. The further observation of the Court below, in Para 11 of its order under appeal in CMA No.3422 of 1999, that the defendant “acted as a Judge adjudicating the dispute giving its own interpretation to clause (8) in the letter dated 10-10-1996, being helped by a legal opinion obtained subsequently, contrary to the instructions of its own customer” does not appear to be correct, and if we may say so, is wholly unwarranted. Clause (8) of Ex.B1 is in very plain, simple and

unambiguous language. Any ordinary prudent person, without any basic legal knowledge, can easily interpret it, to say that unless and until Sri P. Venkateshwarlu and S.R. Kailas intimate in writing to the contra, defendant is bound only to follow the instructions given in Ex.B1, and need not act on the contra instructions given by the plaintiff alone. Therefore, defendant, which is holding the funds of the plaintiff under an escrow arrangement, writing Ex.A12 letter in reply to Ex.A11 letter of the plaintiff, is very natural, and no motives need or can be attributed to the defendant. Defendant obtained Ex.B10 legal opinion, obviously to find out the legal implication in its writing Ex.A12 reply to Ex.A11 letter of the plaintiff. Therefore, defendant cannot also be found fault with, for its obtaining Ex.B10 legal opinion. We rest with saying that judicial restraint prompts us from stating anything further than observing that the sentence reading “being helped by a legal opinion obtained subsequently” deserves to be, and is hereby expunged from Para 11 of the order under appeal in CMA No.3422 of 1999.

29. In Para 12 of the order under appeal in CMA No.3422 of 1999 the Court below observed :

“It is significant to note that the said letter issued by advocate bears the time endorsed by the bank as 10.15 a.m., while Ex.B13 shows that it issued a demand draft at 8.15 a.m., on 1-10-1999. This endorsement made by the respondent-bank shows its guilty consciousness and its collusion with S.R. Kailas obviously to circumvent the order of injunction granted by this Court. Unless it is conscious of its guilt it would not have put the time 8.15 a.m., on Ex.B15 dated 1-10-1999”

The above observation of the Court below that on Ex.B15 the time is mentioned as 8.15 a.m., is obviously a mistake for

10.15 a.m. The comment that the defendant acted with a ‘guilty conscious’ while putting the time as 10.15 a.m., on Ex.B15, was not necessary to be made, as it is well known that an order of injunction comes into operation only from the time of knowledge, or notice, of the order to the person against whom such injunction is passed, but not before notice or knowledge. It is not even the case of the plaintiff that defendant had knowledge of the order of injunction passed against it before Ex.B15 1etter was served on it. Admittedly defendant issued a draft in favour of the third party at 8.15 a.m., i.e., before it had knowledge of the order of injunction passed against it. Immediately after receiving Ex.B15 letter from the Counsel for the plaintiff, defendant obtained a legal opinion and sent Exs.B16 and B17, letters to the Reserve Bank of India and the Commissioner of Income Tax, which prima facie establishes that defendant acted with all bona fides, and without any collusion with the third party. If really the defendant acted in collusion with the third party, it would have taken a stand that since it already issued a draft at about 8.15 a.m., to the third party, before having knowledge of the order of injunction, its responsibility had ceased. In such case plaintiff would have been left with no remedy against the defendant. All these apart a person holding a responsible office noting the time of receipt on the letter bringing to his notice about the order of injunction passed by a Court against him or the institution of which he is an executive, is not unnatural. The order of ex parte injunction in this case is passed against the defendant but not on the officer on whom Ex.B15, letter is served. The person receiving Ex.B15 will have to inform his superiors the time of its receipt, and the action he took, after receipt of Ex.B15. The officer might have put the time of the receipt of

the letter for his own remembrance. So, the officer of the defendant by putting time of receipt on Ex.B15, cannot be said to have acted with a ‘guilty conscious’ and in collusion with the third party, since it is not even the case of the plaintiff that either the said officer, or any other officer of the defendant had knowledge of the injunction before 10.15 a.m., on 1-10-1999 i.e., the time when Ex.B15 was served on the officer of the defendant. It is also noted the case of plaintiff that the third party was present when Ex.B15 was served on the officer of the defendant. Therefore, the Court below was in error in drawing any inference, or an inference of collusion between the defendant and the third party, by reason of the time of receipt of Ex.B15 being mentioned thereon.

30. The surprise or astonishment expressed by the Court below in Para 12 of its order under appeal in CMA No.3422 of 1999 about Ex.B9 being received by defendant so fast, was not expressed on defendant and plaintiff receiving Exs.A11 and A12 on the same day on which they were addressed to each other. The further observation in said Para 12 of the order under appeal in CMA No.3422 of 1999 that “there is absolutely no material to say that Income Tax authorities applied any pressure on the respondent-bank to verify shares. It can only be the imagination of the respondent-bank and is not based on any evidence. This action of the respondent-bank in counting the shares on a bank holiday obviously to help S.R. Kailas speaks volumes about is mala fide intention in this tardy affair” and its further observations at the beginning of Para 13 “when it (defendant) smelt that the petitioner company is going to a Court of law the Bank acted in undue haste and mala fides and verified the shares on a bank holiday under the imaginary pressure of Income Tax authorities, which

was not borne out by any evidence” are obviously made without keeping in view the fact that parties have not adduced oral evidence, and the application was disposed of only on the basis of the documents filed by the parties, and the legal position as to the duty of the defendant holding the funds under an ‘escrow’ arrangement under Ex.B1. Therefore, it is premature to observe that the plea of the defendant is not “based on evidence”. The further observation in the same Para 12 of the same order “Thus by one stroke it saved S.R. Kailas from the Income Tax authorities…..” itself, prima facie establishes that there was pressure from Income Tax authorities. These things apart it should not be forgotten that 30th September is quarter ending for payment of income tax dues. When a huge amount of two crore rupees is due to the Income Tax Department from the third party, and when Income Tax Department knew that that amount is lying with the defendant under escrow arrangement, and that the third party would realise that amount as and when it releases the shares, it naturally would be interested in getting the amount as early as possible. It is for that reason, the third party was instructed by the Income Tax authorities, under Ex.B9 letter, to write a letter to the defendant that rupees two crores, kept in escrow account, along with the accrued interest, should be released to the income Tax Department, and marked a copy thereof to the defendant. The third party, who owes a huge amount to the Income Tax Department, and who entered into an MOU with the plaintiff would, as any ordinary prudent person, be in constant touch with the authorities of Income Tax Department and would be knowing when the shares seized would be released. Therefore, the third party writing Exs.B5 and B6 letters cannot be viewed with suspicion. Since 30-9-1999 happened to be a holiday for the amount due for the shares released by the Income Tax Department, as per the terms of Ex.B1, defendant gave a draft on 1-10-1999

in the name of the Commissioner of Income Tax, as per the instructions given to it by the third party. The act of defendant and the Income Tax Department counting shares on a holiday, per se, cannot be said to be the result of collusion between the defendant and the third party, because Income Tax Department is involved therewith. When the shares were released by the Income Tax Department, and when they were counted, are matters which have to be decided after taking evidence during trial, and cannot be decided without evidence.

31. Plaintiff will not be put to any
loss, muchless irreparable loss, if injunction as sought is not granted, because defendant is a Bank.

32. Suppression of Ex.B1 and its terms, especially clause 8 thereof in the plaint and the affidavit filed in support of the petition IA No.1365 of 1999, prima facie, establishes that the plaintiff did not approach Court with clean hands. Since plaintiff failed to establish a prima facie case, and since it would not be put to any loss muchless irreparable loss if injunction is not granted, and since plaintiff did not approach Court with clean hands, plaintiff is not entitled to the injunction sought. The point is answered accordingly.

33. The finding of the Court below that though adjudication of dispute in the suit may result in effecting the rights of the third party, his remedy is to file a separate Suit, because plaintiff as dominus litis cannot be compelled to implead a person against his will, is not in consonance with the well settled principle of law that a person who has a right or interest in the subject matter, and would be effected by the result of the suit, is a proper, if not necessary party, to the suit. The Court below does not seem to have properly understood the ratio in Motiram R. Coad Co. v. District Committee,

, and was in error in following Banarsi Das v. Panna Lal, , of the Punjab and Haryana High Court, when direct decisions of this Court are available on the point in issue. In Shaik Muneerunddin v. Karnataka Power Corporation Limited, and in A. Seetharamayya v. Bh. Gopalakrishna Murthy, , it is held that if a person has interest in the subject matter of the suit, he can come on record as a party. In fact in Srinivasa Murthy v. Venkata Subba Raot 1956 ALT 917, it was held that in appropriate cases Court can implead a new party as a defendant even against the plaintiffs desire, since the expression ”questions involved in the suit” in Rule 10(2) of Order 1 CPC does not relate merely to the question as between the parties originally impleaded, but relates to the real dispute raised in the suit and so it should be decided in the presence of all the parties interested in the dispute. In view of the finding of the Court below that if the relief sought by the plaintiff in the suit is granted, it would indirectly effect the third party, as held in the above decisions of our High Court third party, as a person interested in the dispute involved in the suit, can be brought on record as a defendant, even against the wish or resistance of the plaintiff, and can also seek vacation of the ex parte injunction granted against the defendant, because the injunction in fact effects him (third party) but not the defendant.

34. In view of the conclusion reached by us, it is not necessary to refer to the ratio laid down in Firm of Mahadeva Rice and Oil Mills and others v. Chennemilali Gounder, , Razia Begum v. Sahebazadi Anwar Begum and others, AIR 1958 AP 195, U.P. Co-operative Federation Ltd. v. Singh Consultants and Engineers (P) Lid., , National Thermal Power Corporation Ltd v. M/s. Flowmore Private Ltd., 7 others,

, General Electric Technical Sen-ices Company Ine. v. M/s. Punj Sons (P) ltd. and another, , U.P. State Sugar Corporation v. Sumac International Ltd., , Svenska Handlesbanken v. M/s. Jnian Charge Chrome and others, , Dwarikesh Sugar Industries Ltd v. Prem Heavy Engineering Works (P) Ltd. and others, , Binny Limited Madras v. Nizam Sugars Limited, Hyderabad, 1996 (4) ALD 608, cited across the Bar, which relate to issuance of injunction with regard to encashment of bank guarantee. They are referred to herein because they were cited before us. The said decisions and the ratio therein have no application to the facts of this case.

35. Before parting with the case, we should also refer to the contention of the learned Counsel for the third party, that the third party suffered great monetary loss because of the injunction granted by the Court below, as the amount legally due to the third party from the plaintiff, was withheld and as such the Income Tax Department, to which the said amount has to be paid, levied penalty amounting to several lakhs. We need not consider that contention because the relevant details as to the damage, if any, suffered by the third party are not available on record. Needless to say that, as held in Bank of India v. Lakshman Das, 2000 AIR SCW 844, it is open to the third party, and the defendant also, to proceed against the plaintiff for damages, if any, suffered by them, as a result of its (plaintiff) obtaining an injunction, by suppressing facts. We further wish to add that all the above observations in the earlier paras of this order are made only for the purpose of deciding the CMAs. and CRP and the Court below, at the time of trial, should decide the suit, uninfluenced by the observations made in this order.

36. In the result, both the CMAs and the CRP are allowed with costs. Consequently, IA No.1365 of 1999 in OS No.333 of 1999 on the file of the Court of the III Senior Civil Judge, Secunderabad stands dismissed and IA No.1390 of 1999 and IA No.1382 of 1999 in the said suit stand allowed. Petitioner therein is ordered to be added as 2nd defendant in the suit. Advocate fee is fixed at Rs. 1,500/- in each appeal and CRP.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

* Copy This Password *

* Type Or Paste Password Here *